Report Highlights Role of Mutual Funds in 401(k) Assets

A recent report on 401(k) services, fees and expenses looks closely at usage of mutual funds in 401(k) investments. It says that participants invest primarily in equity mutual funds, and that most such assets are held in lower-cost mutual funds with lower-than-average portfolio turnover.

competition among mutual funds and other investment products to offer shareholders service and performance;

plan sponsor decisions to cover a portion of 401(k) plan costs;

economies of scale;

cost- and performance-conscious decisionmaking by plan sponsors and plan participants; and

the limited role of professional financial advisers in these plans.

The ICI says that expense ratios that 401(k) plan participants incur for investing in mutual funds have declined substantially since 2000, a trend that continued in 2016. By 2016, it says, 401(k) plan participants incurred an average expense ratio of 0.48%, a 38% drop since 2000. Further, says the ICI, the expenses that 401(k) plan participants incurred for investing in hybrid and bond mutual funds also fell from 2000 to 2016, by 26% and 43%, respectively.

The report says that 90% of 401(k) plan mutual fund assets were invested in no-load shares by the end of 2016, and were about evenly split between retail and institutional no-load shares. Load shares accounted for the remainder of 401(k) mutual fund assets. It further says that over the last 10 years, institutional no-load shares have become a larger segment of 401(k) mutual fund assets, while retail no-load shares and load shares have comprised a smaller portion.

The report also notes that 401(k) plans are the most common private-sector employer-sponsored retirement plan in the United States, and held $4.8 trillion in assets at New Year’s Eve 2016.

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